ETF Focus

Does Currency Hedging Pay?

Diversification and a long investment horizon usually offset any impact from exchange-rate fluctuation.

There's a new land grab in exchange-traded funds: currency hedging. But the rise of ETFs that add yen, euro, or peso nuance to stocks is really about short-term investing. History shows that those with a long horizon and broad diversification usually can wait out currency fluctuations.

Until recently, currency-hedged investing was a bit like the metric system—it's everywhere overseas and ignored in the U.S. Ignorance was bliss: The weak greenback helped the MSCI World ex-USA Index to a five-year 10.5% advance in dollars...